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Impact of Rupee deprecation on Indian Economy

Introduction
Rupee depreciates by over 16% to an all time low of 61.82 against the dollar
Each country has its own currency except in Europe where a group of countries have
a common currency. The rate at which one currency can be exchanged for the other
is called forex rate. A currency is said to have appreciated against the other
currency when we had to pay less units of former currency in exchange of one unit
of the later. Similarly a currency is said to have depreciated against the other
currency when we had to pay more unit of former currency in exchange of the later.
The exchange rate between the Indian Rupee and the US Dollar has gone over the
roof.
The Indian currency has witnessed a slippery journey since Independence. Many
geopolitical and economic developments have affected its movement in the last 67
years. When India got freedom on August 15, 1947, the value of the rupee was on a
par with the American dollar. There were no foreign borrowings on India's balance
sheet. To finance welfare and development activities, especially with the
introduction of the Five-Year Plan in 1951, the government started external
borrowings. This required the devaluation of the rupee. After independence, India
had chosen to adopt a fixed rate currency regime. The rupee was pegged at 4.79
against a dollar between 1948 and 1966. Two consecutive wars, one with China in
1962 and another one with Pakistan in 1965; resulted in a huge deficit on India's
budget, forcing the government to devalue the currency to 7.57 against the dollar.
The rupee's link with the British currency was broken in 1971 and it was linked
directly to the US dollar. In 1975, value of the Indian rupee was pegged at 8.39
against a dollar. In 1985, it was further devalued to 12 against a dollar. In 1991,
India faced a serious balance of payment crisis and was forced to sharply devalue
its currency. The country was in the grip of high inflation, low growth and the foreign
reserves were not even worth to meet three weeks of imports. Under these
situations, the currency was devalued to 17.90 against a dollar. 1993 was very
important. This year currency was let free to flow with the market sentiments. The
exchange rate was freed to be determined by the market, with provisions of
intervention by the central bank under the situation of extreme volatility. This year,
the currency was devalued to 31.37 against a dollar. The rupee traded in the range
of 40-50 between 2000 and 2010. It was mostly at around 45 against a dollar. It
touched a high of 39 in 2007. The Indian currency has gradually depreciated since
the global 2008 economic crisis. Liberalizing the currency regime led to a sharp
jump in foreign investment inflows and boosted the economic growth

In present scenario the Indian rupee extended falls to a new low of 65.50 to the
dollar as heavy demand from importers along with weak domestic equities
continued to weigh on sentiment

TODAY: 1 INR = 60.24096 USD


Objective of the study:
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To have an idea about what is rupee Devaluation


To understand the cause and step taken by the government
To study real implication of the depreciation of rupee on the Indian economy